Herbie's Utility Function Is , Where X Is the Number

question 1

Multiple Choice

Herbie's utility function is , where x is the number of x's he consumes per week and y is the number of y's he consumes per week. Herbie has $200 a week to spend. The price of x is $1. The price of y is currently $4 per unit. Herbie has received an invitation to join a club devoted to the consumption of y. If he joins the club, Herbie can get a discount on the purchase of y. If he belonged to the club, he could buy y for $1 a unit. How much is the most Herbie would be willing to pay to join this club?

• A) $33
• B) $21
• C) $4.50
• D) $16.50
• E) None of the above.

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Definitions:

Standard Costs

Predetermined costs to manufacture a single unit of product, serving as a benchmark for measuring performance.

IMA

Stands for the Institute of Management Accountants, a professional organization that promotes the practice of management accounting and financial management.

Price Variances

The difference between the actual cost and the standard cost of goods or services.

Direct Labor Cost Variance

The difference between the budgeted or expected cost of direct labor and the actual cost incurred.